9911796707
TMI Blog2011 (3) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue by holding that this loss was to be considered as non speculation business loss. 3. Having heard the rival submissions and perused the relevant material on record we find that this issue has been settled by the Special Bench of the tribunal in Shree Capital Services Limited v. ACIT [(2009) 125 TTJ 740 (Kol.) (SB)] by holding that loss on account of transactions in derivatives, that is, F & O transactions, has to be considered as speculation loss up to assessment year 2005-2006. Insertion of clause (d) of proviso to section 43(5) has been held by the Special Bench to be prospective as applicable from assessment year 2006-2007. Since the assessment year under consideration is 2004-2005, the issue is duly covered by the afore-noted Special Bench decision. We, therefore, reverse the finding given by the learned CIT(A) and restore the action of the Assessing Officer. This ground is allowed. 4. Second ground is against the deletion of disallowance of Administrative expenses admitted to have been incurred for F & O transactions amounting to Rs.4,94,649. The facts apropos this ground are that the assessee debited a sum of Rs.46,48,955 to its Profit and loss account towards ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aded that the expenses should also be allocated in such a manner that these are not in proportion to the turnover. It was suggested that some relatively lower ad hoc disallowance towards such administrative and general expenses be sustained. 6. We are not impressed with this submission. Adverting to the facts of the instant case it is found that the Assessing Officer has taken total administrative and general expenses which have been bifurcated on the basis of ratio of turnover of speculation and non-speculation business. The obvious reason is that the assessee had clubbed expenses in relation to both these businesses. When the income from speculation business is required to be computed separately, the expenses claimed in a consolidated manner need to be bifurcated on some reasonable basis and not on ad hoc basis. In our considered opinion the splitting of expenses on the basis of turnover, in the absence of other reasonable measure suggested by the learned A.R., is reasonable and does not call for any interference. We, therefore, hold that the Assessing Officer was right in determining general administrative expenses as relatable to speculation business at Rs. 4,94,649. The impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable in this case. The dispute only centers round the computation of 'book profit'. The Assessing Officer computed the book profit by increasing net profit as per profit and loss account with a sum of Rs.1.25 crores debited by the assessee in its profit and loss account with the narration "Provision for diminution in the value of investments. 9. At this juncture it would be relevant to note the judgment of the Hon'ble Supreme Court in CIT v. HCL Comnet Systems and Services Limited [(2008) 305 ITR 409 (SC)] in which the controversy was about the adding back of provision for doubtful debts to the net profits under clause (c) of the Explanation to section 115JA. The Hon'ble Supreme Court noted that clause (c) of Explanation to section 115JA talks of : "the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities". It was held that clause (c) would be applicable only if the amount is set aside as provision for meeting a liability other than ascertained liability. As the provisions for bad and doubtful debts was made to cover up the probable diminution in the value of asset, that is, debt which was an amount receivable by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f provision for diminution in the value of investment was at Rs.9.08 crores and with the addition of the amount of Rs.1.25 crores, being the provision for this year, the total amount of provision as at the end of the year stood reflected at Rs. 10.33 crores. He showed that the assessee had reduced the amount of such provision for diminution in the value of investment from the gross value of investment at Rs.27.62 crores and resultantly only the net sum of Rs. 17.28 crores was shown in the balance sheet. It was, therefore, argued that by reducing the amount of provision for diminution in the value of investment from the gross figure of investment, the assessee had shown net figure of investment in the asset side of the balance sheet and as such no figure of provision was appearing in the liability side. Reference was made to the judgment of the Hon'ble Supreme Court in the case of Vijaya Bank v. CIT [(2010) 323 ITR 166 (SC)] in which the question for consideration was deductibility of the provision for bad debt u/s.36 (l)(vii). He read out the relevant parts of this judgment to show that the Hon'ble Supreme Court has entitled the assessee to deduction u/s. 36(l)(vii) by holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is a special provision for payment of tax by certain companies and opens with non-obstante clause thereby excluding any other provision of this Act in the matter of determination of payment of tax by certain companies. Book profit is computed by adding back certain amounts to the net profit as shown in the profit and loss account which have been debited to the profit and loss account and thereafter reductions start, which have been specified in the later part of the Explanation in clauses (i) to (viii) if such amounts have been credited to the profit and loss account. From here it follows that if the amount set aside as provision for diminution in the value of any asset, appears on the debit side of the profit and loss account, which implies that the amount of net profit as per profit and loss account is after the amount of such provision, then such amount will be added back to the net profit for computing 'book profit' as per Explanation 1 to section 115JB(2). There is no other requirement in the language of the section for the addition or non-addition of the amount of provision for diminution in the value of any asset to the amount of net profit as shown in the profit and lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of the assessee debiting provision for diminution in the value of investment to its profit and loss account, the same is required to be added for determining book profit. 13. The learned Counsel for the assessee supported the impugned order from another angle. He submitted that since section 115JB is a code in itself, only those adjustments to the net profit can be made which are clearly stipulated under Explanation 1 to section 115JB(2). Accentuating on the language of clause (i), which talks of provision for "diminution" in the value of any asset, the learned AR contended that the term 'diminution' in this clause refers to reduction in the value of an asset. He submitted that this word presupposes one higher value of an asset before diminution and another lower value of the same asset after diminution. Referring to the meaning of word "diminution" in the Webster's Dictionary and Shorter Oxford English Dictionary, the learned A.R. contended that it represents "the condition of being diminished" or "to make smaller or less". He emphasized on the meaning of word "diminution" as suggesting having some lower value of the asset other than zero as a precondition for the attrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the value of any asset" and not with the value of asset which remains after diminution. Explanation 1 contemplates the adding back of the provision for diminution in the value of any asset to the amount of net profit. Once provision is made for diminution in the value of any asset, the same has to be added for computing book profit, regardless of the fact whether or not there is any balance value of the asset. In view of the foregoing discussion it is manifest that as the Explanation 1 to section 115JB(2) deals with the computation of book profit and specifically provides that the net profit as shown in the profit and loss account for the relevant previous year has to be increased inter alia by the amount of provision for diminution in the value of any asset, the amount of provision for diminution in the value of any asset debited to the profit and loss account before the determination of net profit has necessarily to be added. We, therefore, reject this contention raised on behalf of the assessee. 15. The learned A.R. still attempted to strengthen his case from still another angle by pointing out there are certain amounts, enumerated in clauses (i) to (viii), which are requir ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
